Sebi allows mutual funds to resume overseas investment. Is it an opportunity for investors?

Capital market regulator Sebi's decision to allow mutual funds to accept inflows in their international schemes doesn't bring any major relief to investors. In a circular released earlier this month, the market regulator lifted the temporary suspension on mutual funds to invest in international stocks.

It says, "Mutual funds can make overseas investments subject to a maximum of $1 billion per mutual fund, within the overall industry limit of $7 billion. Mutual funds can make investments in overseas exchange-traded funds (ETFs), subject to a maximum of $300 million per mutual fund, within the overall industry limit of $1 billion."

Sebi (Securities and Exchange Board of India) had put restrictions on mutual funds in January this year saying it’s breaching the mandated overseas investments limit.

The restriction on overseas investment has been removed given the end-to-end losses in the market due to the fall in stock prices, says Prashant Maurya, partner, Citrine Financial Advisors, a Delhi-based Amfi-registered mutual fund distributor. This is not an advantage to the investors, he adds.

Meanwhile, ICICI Prudential Mutual Fund has reopened its schemes – ICICI Prudential US Bluechip Equity Fund, ICICI Prudential Global Stable Equity Fund (FOF), ICICI Prudential Global Advantage Fund (FOF) and ICICI Prudential Nasdaq 100 Index Fund, for fresh SIP registrations and lumpsum investments.

Edelweiss Mutual Fund will allow inflows in ASEAN equity off-shore fund, Greater China Equity Offshore Fund, the U.S. Technology Equity Fund of Fund, Emerging Markets Opportunities Equity Offshore Fund, Europe Dynamic Equity Offshore Fund, U.S. Value Equity Off-shore Fund and MSCI India Domestic & World Healthcare 45 Index Fund.

PGIM India Mutual Fund has also started accepting lumpsum subscriptions and systematic registration in its schemes namely, PGIM India Global Equity Opportunities Fund, PGIM India Emerging Markets Equity Fund and PGIM India Global Select Real Estate Securities Fund of Fund.

Nippon India Mutual Fund and Mirae Asset have also opened the subscription to their international schemes. Investors should not rush to invest in international funds. "Those looking at investing in overseas funds should in fact wait for the limits to be increased,'' says Jitendra Solanki, a Sebi-registered investment adviser. Investors should not take this as an opportunity.

As per Prashant Maurya, at present, there would be a scope of an additional investment of roughly around ₹800 crore to ₹1,200 crore in these schemes, which is not big. "The mutual fund houses may stop taking the inflows at any time," he says. Edelweiss Mutual Fund in its communication to investors says, "The AMC at its discretion reserves the right to suspend the subscriptions as and when it is close to the headroom limit, which was available as of February 1, 2022."

Is it a good time to invest overseas?

The overseas stock markets have seen a meaningful correction in the last year. The froth from the valuations, says Rahul Roy Chowdhury, business head-wealth, Equirus, seems to have tapered but the markets are still trading above the long period averages. Also, as per Chowdhury, a lot will depend upon how the interest rate hikes impact the asset prices and whether the corporate earnings are revised downwards if the GDP growth is revised downwards.

"US S&P 500 forward P/E is now down to 15.4 times. 2020 Covid corrections brought down the S&P 500 P/E to 13.5 X. Given this background, if someone is not exposed to overseas funds, she can look at building the portfolio in a staggered manner," says Rahul Roy Chowdhury. Whilst the valuations are in a fair zone and not expensive, investors need to mind that overseas equity markets are going to be volatile, he cautions investors. The exposure to overseas funds should be best capped at 15% to 20% from an asset allocation perspective.

Those willing to invest overseas, says Chowdhury of Equirus, may invest 50% lumpsum and the balance of 50% can be staggered over a period of 6 months.